The Department for Work and Pensions (DWP) has launched a consultation into implementing an increased cap on Financial Assistance Scheme (FAS) payments for eligible members with long service in a single defined benefit (DB) pension scheme.
The consultation, which will run between 18 September and 25 October 2017, will seek feedback on draft regulations designed to increase the cap for FAS members to 3% for each full year of pensionable service above 20 years from when members first become entitled to FAS payments, subject to a new maximum of double the standard cap.
This is in line with an increased cap that was introduced for the Pension Protection Fund (PPF) in April 2017, after a written statement was laid before the House of Commons by former pensions minister Richard Harrington in September 2016. This also announced the government’s intentions to apply the same cap to the FAS from April 2018.
The FAS, which is managed by the PPF, tops up or replaces DB scheme benefits payable to eligible members where the funds in the original workplace pension scheme are not sufficient to provide annuities that would supply the member with their accrued pension entitlement rights. It provides support to pension scheme members if: they were a member of an under-funded DB scheme that started to close between 1 January 1997 and 5 April 2005; if the scheme did not have enough money to pay members’ benefits and the employer could not pay the shortfall because it is insolvent, no longer exists, or does not have a legal commitment to pay its debt to the pension scheme; or if the scheme started to wind up after 5 April 2005 but is ineligible for help from the PPF because the employer become insolvent after this date.
The existing FAS cap is set at £34,229 a year for any member whose entitlement begins between 1 April 2017 and 31 March 2018. The cap is revalued on an annual basis according to the Consumer Prices Index (CPI), with indexation of FAS payments in general limited to accruals from April 1997 subject to a maximum increase of 2.5%.
If the draft regulations are successfully passed through both Houses of Parliament, then any FAS member who is in receipt of a FAS payment and has had 21 full years or more qualifying service in a single pension scheme when they first became entitled to a FAS payment will have their payments recalculated when the regulations come into effect next April. The increase will not be backdated.
The consultation seeks to collect views from FAS members, pension scheme administrators and the board of the PPF, as well as any additional interested parties.